FAQs

What is a Self Directed IRA?

Legally speaking, a self-directed IRA is no different than any other IRA. Having a self-directed IRA simply means that you are allowed to direct the investments of the IRA. Many custodians claim that they allow you to self-direct your IRA investments but then turn around and restrict what you can invest in. A truly self-directed IRA allows you to make the decisions without restriction.

I don’t have enough money in my IRA to purchase a piece of property outright. Can my Self-Directed IRA or 401K get a loan and use my IRA money as the down payment?

Yes you can use your IRA money as the down payment and then have your Self-Directed IRA or 401K get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse type of loan which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself. Further, there will be tax ramifications to doing so; UDFI (unrelated debt financed income) tax applies when a loan is obtained so you would want to confer with your tax professional about what forms would be necessary.

What is a TRUE Self-Directed IRA?

It is a step further towards putting you in full control of your IRA.
You don’t have to go to your custodian to get approval of the investment
and get a check written. You truly have a self-directed IRA because you
have checkbook control.

Permissible Investments — What Can My IRA Invest Into?

The investments that you make outside your IRA can now be made within it.
As the investor, have tremendous flexibility to make the investments of
your dreams. Wouldn’t you love to be able to invest your IRA in:

Real Estate
Commercial
Residential
Raw Land

Trust Deeds, Mortgages & Mortgage Pools

Private Notes and Loans

Private Stock Offerings

Limited Liability Companies (LLCs)

Limited Partnerships (LPs)

Tax Certificates

Accounts Receivables

Options

Futures

Annuities

Currency

Commercial Paper

Stocks, Bonds, Mutual Funds (yes, even from a self-directed account)

And many other assets….all from one account!

What Types of IRA Accounts Can Be Self-Directed?

Any and every one including:

Traditional IRAs

Sep IRAs

Roth IRAs

SIMPLE IRAs (must be in existence for two years)

Is This New or Legal?

No. There are two TRILLION dollars held in retirement accounts; however, only
about 3% of retirement accounts are self-directed and only about 2% are invested
in Real Estate. But what most people don’t know is that the stock market isn’t
your only investment choice for your IRA. You have been able to invest in
Real Estate since the day IRAs were created. That was about 30 years ago!

Hmm, Why Haven’t I Heard of This Before?

Who would tell you? Your stock broker? They will only let you invest
your IRA in investments that their firm offers. At a bank you will be
limited to CDs. At a brokerage firm you will be limited to stocks and
bonds. As a consequence, and unfortunately for many investors, it has
been a well kept secret that they have other options for their IRAs.
The traditional investment community has had control of over 97% of
retirement accounts, and they have been making a great living off your
accounts. Why would they want to let you know of alternatives that they
wouldn’t benefit from?

As investors have become more disillusioned and frustrated with traditional
investment choices, they have begun looking for alternatives. After the
steep stock market decline, corporate scandals and corruption
(e.g. Enron, ImClone, Worldcom) and many investors seeing their
retirement accounts cut in half, they are ready to take control of their own
investments. They often want more tangible investments such as Real Estate.

However, when they ask their current custodians or brokers, they are
typically told that such investments are illegal, too complicated or that
it can’t be done. But those are ignorant and self-serving responses. Although
those custodians / brokers may not allow it, it can be done. It is just likely
you can’t do it through your current custodian so they financially suffer if
you make a move. They aren’t going to tell you about it.

What Would My Broker Say are the Downsides to Self-Directing My IRA?

The only downside is that some people don’t want to be in charge
of their own retirement investments. They are happy having someone
else make all the decisions. A self-directed IRA is not right for them.

For the rest of us who want to be involved in our retirement investments
and make decisions that will affect our retirement, there are no downsides.
Just be aware of the prohibited transactions placed upon the account. We
firmly believe that you are the best steward for your money. Nobody cares
as much about your retirement as you do.

Is There Quality Education on Self-Directed IRAs?

The traditional investment community has control and is making money
on over 97% of the retirement accounts. Why would they want you to
know that you had other options, and risk losing the commissions on your
retirement accounts?

IRA Custodians — Why Are They Required and How Are They Different from each Other?

The government allows certain institutions to handle the accounting
and reporting of IRAs. Under the law, all custodians can allow you to
invest your IRA in the same types of investments (stocks, bonds, real estate,
notes, tax liens, etc.). However, the majority of custodians have made the
decision to restrict the types of investments you can make. This is not based
upon law, but it is based upon what the custodian wants to offer. However, there
are a handful of custodians who allow non-traditional investments. Please
contact us for a special report on self-directed custodians.

My SD IRA — How do I Get COMPLETE Control?

Having a self-directed IRA is one step toward obtaining complete control.
To obtain a truly self-directed retirement account you need
PGI Self-Directed. This is the structure that gives you checkbook
control. When you simply establish an account with a self-directed custodian,
you are still required to get permission from the custodian before making each
investment. This is time consuming, cumbersome and more expensive than it needs
to be. With PGI Self-Directed you are then able to make investments the minute
you decide to without getting permission from anyone. You have the checkbook
You are in control of your retirement money. We firmly believe that you are
the best steward for your money. Nobody cares as much about your retirement
as you do.

Can All of These Accounts be Self-Directed?

Yes, 401Ks, all IRAs (Traditional, Roth, SEP, SIMPLE) and 403Bs can all be transferred or rolled over into a self-directed account. On a quick note, current IRS regulations do not allow Roth IRA funds to be transferred/rolled over into a 401K plan. Also, SIMPLE IRAs can be transferred/rolled over after the plan has been in effect for at least two years.

Real Estate — Permissible Investment for an IRA?

Absolutely. Although less than 3% of retirement accounts
are invested in non-traditional investments (anything other
than Dow & Nasdaq stocks, bonds, CDs, etc), and less than 2%
are invested in Real Estate, that is changing. More and more,
individuals are becoming more and more frustrated with the
options offered by their current custodians. Individuals are
exploring investments that they can see and touch and that have
some tangible value such as Real Estate. They have seen the
outstanding returns that investors have historically received
in Real Estate and want to move all or part of their retirement
money into various Real Estate investments.

Within the broad category of Real Estate, there are many options
for investment:

IRS’ Opinion on and IRA Investing in Real Estate?

The IRS makes the following statement on their website:

“…..because of administrative burdens, many IRA trustees
do not allow IRA owners to invest IRA funds in real estate.
IRA law does not prohibit investing in real estate but trustees
are not required to offer real estate as an option.”

Okay, So Can My IRA Purchase Property I Already Own?

No, No and No. Want to ask again? The answer is still NO! This would be considered a prohibited transaction (self-dealing).

(see IRC 4975). You many not purchase property which is currently owned by you
or any other disqualified person (see below). You would need to find another
piece of Real Estate that you don’t already own to purchase.

My Broker Says My IRA Cannot Invest in Real Estate?!

Likely because your current broker won’t let you invest
in real estate through their custodian. It is not that you
cannot, it is more the fact that your current custodian doesn’t
offer those assets for investing…but, they could if they wanted
to. As we have said before, the reasons they don’t offer these
assets is because there is not a user-friendly way for them to be
paid.

Just because that isn’t something they offer doesn’t mean that you
can’t do it. It just means that you can’t do it through them.
It is a limitation that your broker is placing on your IRA…NOT
a limitation that the IRS is placing on your IRA. Or your current
broker may just not have the knowledge of your ability to invest
in many different asset classes. Either way, you can invest in Real
Estate and a plethora of other investments.

What is the Easiest Way for My SD IRA to Purchase Real Estate?

Quite honestly, whether utilizing PGI’s services or not, PGI’s
structure is such that you will have the least number of road
blocks and unnecessary stalls. You will have checkbook control
of your IRA assets. No more being told that you cannot, you
control the checkbook. No more having to wait for a self-directed
custodian to process your investment request…you will have your
own checkbook. You just need to follow IRS rules.

If you want full control of your retirement assets…you need
PGI.

Rental Income — What Happens to it?

Any income that the IRA receives in rental income from a non-leveraged rental property goes right back into the IRA. As long as you do this, your IRA (and you, as account holder) retains the tax-deferred (Traditional IRA) or tax-free (Roth IRA) status of the IRA.

My IRA Doesn’t Have Enough Funds — Can the IRA Take a Loan on the Property?

Yes you can use your IRA money as the down payment and
then have your IRA secure a non-recourse loan for the balance.
However, you will not be able to personally guarantee the loan,
as that would constitute a Prohibited Transaction by you, a
disqualfied individual, extending credit to your IRA. It must be
a non-recourse type of loan which means that if your IRA fails
to make payments, the only recourse the lender has is against
the property itself. Further, there will be tax ramifications
to doing so…UDFI (unrelated debt financed income) tax applies
when a loan is obtained so you would want to confer with your
tax professional about what forms are necessary and what tax
would be applicable.

Investing with Others — May I?

Yes,IRAs may purchase an undivided (and proportionate)
interest in Real Estate or any other asset. Obviously,
this is assuming that no investment is made with any
disqualified individual or violating any other Prohibited
Transaction.

Property Manager of a Rental Property Held by My IRA?

The question that comes up all the time. The simple answer is NO.
You are serving as the fiduciary for your plan and,in that role,
you cannot personally benefit from your relationship to your IRA,
NOR can your IRA benefit from its relationship to you. Unfortunately,
too many self-directed companies can steer their clients into this
slippery slope by advising that they may be able to. Keep it simple
and don’t do it.

Re-Hab, Renovation Expenses — May Personal Funds be Used?

A big, fat NO. Remember, you are only serving in the role as
the fiduciary of the plan. In the IRS, you do not own the
property, your IRA does. As such, your IRA MUST use its funds
to pay any and all expenses related to the plan, including
re-hab and renovation expenses. ALL expenses of the property
are paid with IRA funds, and all profits made on the property are
returned to the IRA.

Permissible Investments — Vacation Property

People ask whether their IRA can purchase vacation property or property in vacation locales or, even, internationally. Of course, IRA plans can purchase such property as long as it does not violate any Prohibited Transactions…which, includes the IRA owner’s exclusion from residing on the property. This prohibition is in tact even if the IRA owner pays “the going rate” for the vacation rental.

Can I Live in the Property that My IRA Purchased in Retirement Years?

Yes. Your IRA would be the original owner. You
would use your IRA money to make the purchase and
maintain the property. Any rents generated would
be returned to the IRA. However, upon reaching retirement
age, the property could be distributed out to you.
Of course, you would have to pay taxes at that point but
without penalty.

In fact, you may be able to even pay less taxes at time
of “distribution” utilizing the “discounting” of the asset,
which is permitted in most states.

Why PGI SelfDirected?

You can only receive true checkbook control with
PGI Self-Directed. With a self-directed custodian, you get more control
than you get with a traditional custodian, but you still have to get permission
from the custodian for every little thing you do. This is problematic,
unnecessary and annoying. Further, with any time sensitive investment it puts
you at a huge disadvantage. And what Real Estate deals aren’t time sensitive. If
you don’t move quickly, you will miss out on the best deals. And think of tax
liens and tax deeds sold on the courthouse steps; you need to have checkbook
control or you miss out. With true checkbook control you have the
checkbook, authority to write the checks and can make an investment without time
delays. This ensures that your IRA is able to make the best investments at the
best prices.

With the true checkbook control your IRA will be
subject to fewer and lower fees from the custodian. Thus, there is more money
for your retirement, which is the whole goal of an IRA.

First and foremost…service. Second, your IRA will be
established so that you will have total and true checkbook
control of your IRA funds. Third, with such control, you
write the checks….no more asking your custodian for a
check, waiting for the check and then paying the custodian
a fee for the ability to get your check! Remember, it is
your money…why shouldn’t you be able to control your
retirement checkbook as long as you follow all applicable
IRS regulations?! Fourth, PGI’s competitive position with
its fees. By working with PGI, you will have achieved
full control of your retirement account, pay a one-time fee
for this control, and never be charged anything further from
PGI. You must still have a custodian in place for your IRA…
that’s a Congressional mandate….but, you will avoid paying the
annual and large fees with using a regular custodian that will
charge you fees for transactions, account balances, etc.

May My IRA Make “Hard-Money” Loans?

Absolutely. This is done quite frequently and can be a
great investment for your IRA. Especially, when loans are
made for properties, the loan can be secured by the property.

Disqualified Individuals — Brothers, Sisters, Aunts and Uncles!?

Yes. According to IRC 4975, only ascendents and descendents
of the account holder and their spouse (if applicable) are
disqualified individuals. As such, there has never been a
reference to any other family members. Although some suggest
that it was an error on the part of the IRS to omit siblings
from the definition, they, nonetheless, were omitted and to
the best of our knowledge, there has never been an IRS ruling to
the contrary.

What are Some Examples of Loans I can make with My IRA?

Well, what if you had a friend who needed a loan for home
improvement and wasn’t able to get funding elsewhere? As he
is not a disqualified individual, you may make him a loan for
practically anything….boat, airplane, hot tub, home improvements,
etc…..you would just want to make sure that you had the loan
secured to protect both the IRA and you.

Real Estate Developer — Many people choose to pool their funds
with an “expert” in the field. As such, you can invest your money
in the form of a loan with such a developer. Developers often are
needing and looking for private financing so it is a great way to
get your IRA involved in Real Estate development. And because
developers often pay an above market interest rate, the loan can
be a great investment for your IRA. Again, you should review all
investments with your tax or legal professional.

Business Loan — You may have a friend with a local business or
some other investment into a business. Your IRA can make a loan
to any type of business, as long as you are not personally involved
with the business and do not otherwise any Prohibited Transactions.

Taxes & Penalties When My IRA Purchases an Investment?

No, as long as YOU are not the one taking the money out of the IRA.
If your IRA is purchasing the investment, it is an investment of the
IRA, and NOT a distribution made to you…which, would, of course,
trigger taxes and potential penalties. Think of it this way, when your
IRA purchases 1000 shares of Microsoft or any other typical stock,
your IRA is just making a different type of investment (and you are
not taxed on any gains until you take distributions out in retirement
years)…same would apply if your IRA purchased real estate (for example).
The method of purchasing real estate may be different than purchasing a
stock, but the tax ramifications are the same.

Gains — Are they Taxable within the IRA?

Not in most cases. If an IRA buys a piece of property
and then sells it at a profit, the gains stay within the IRA.
If you have a traditional IRA, the gains are tax-deferred.
If you have a Roth IRA, the gains are tax free. Note, you
alter that result if you use leverage.

You Mentioned Leverage? What Taxes if I Leverages My IRA Investment?

Unrelated debt financing income tax would apply.
If you do this, you will definitely want to review
your proposed investment with your tax professional
to adequately determined what returns would be due back
do your IRA and what would be due in taxes.

If you are using leverage, as a general rule, unrelated
debt financed income tax will NOT apply.

So, Does Leveraging an Investment Still Make Sense?

Absolutely, if executed correctly. Because of your
increased buying power when you use leverage, the
profits you make from the ability to use leverage can
greatly outweigh the tax associated.

Investments — May My IRA Invest Outside the U.S.?

Yes! Your IRA can invest outside of the U.S. States.
There are many great investment opportunities in other countries.

Prohibited Transactions — What Are They?

Understanding what constitutes a prohibited transaction
is very important when it comes to making investments
within your IRA. The IRS defines a prohibited transaction as follows:

“Generally a prohibited transaction is any improper
use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).”
Publication 590

IRC 4975 is the section that lays out the rules on
prohibited transactions. Prohibited transactions generally involve one of the
following: (1) doing business with a disqualified person; (2) benefiting someone
other than the IRA; (3) loaning money to a disqualified person; or (4) investing
in a prohibited investment.

In plain English, prohibited transactions are those
transactions that violate the basic intent of the IRA.
Your IRA must benefit rather than benefiting you personally.
In other words, there can be no “self-dealing” transactions.
However, there are many ways in which you can invest your
IRA and not be in violation of the prohibited transaction law.
And when your IRA benefits, you benefit because it is for your retirement.

Disqualified Investments — What Are They

The Internal Revenue Code does not specifically
authorize investments within an IRA; rather, the code
outlines what types of investments are not allowed.
The Prohibited Investments include (but may not be limted to):

You should always review planned investments with
your tax professional to ensure that your IRA is not
purchasing a disqualified investment.

Disqualified Individuals — Who Are They?

1) The IRA holder and his or her spouse;

2) The IRA holders ancestors, lineal descendants and their spouses;

3) Investment advisors and managers

4) Any corporation, partnership, trust or estate in which the
IRA holder has a 50% or greater interest; and

5) Anyone providing services to the IRA such as a trustee or custodian.

Please note that many people literally interpret the 50% interest of ownership
and in many cases, the IRS has ruled that people have violated this provision
even when their ownership interest was much less than 50%. This is based, in
part, that while ownership may not have exceeded 50%, their “role” with the
company or enterprise was such that they affected or carried out decision-making
actions that could have had an impact on their IRA. Word to the wise…do not
invest in any company where you are a part owner OR clearly have, in writing,
your investment reviewed and approved by your tax professional.

How am I a Disqualified Individual? It’s MY IRA?!

True, but keep in mind that your only role is acting in the best
interests of the IRA, and not you. By removing you from that
natural “selfish, what’s in it for me” position, you will be, in
theory, making investment choices that are clearly in the best
interests of the plan….which, of course, should have a positive
impact upon you in retirement years.

There is a clear distinction between your IRA and you, individually.
You and your IRA are not the same. Your IRA is a separate Trust
for your benefit when you retire.

And, on a personal note, it is okay if we have to follow some of
these rules we don’t necessarily agree with. The ability to invest
our own retirement funds far outweighs some of the rules we may not
necessarily agree with.

“Self-Dealing” — Give me a Definition, Please!

Self dealing is using your IRA in transactions that in
some way benefit you (or other disqualified persons)
individually. The purpose of your IRA is to provide f
for your retirement. It is not intended to benefit you
prior to retirement and distribution of the funds.

“Self-Dealing” — Okay, Give Me Some Examples, Please!

There can be many, many examples, but here are a few:

1) “Self-Dealing” with a Family Member — Having your
IRA purchase a home for your father.

2) “Self-Dealing” with Yourself — Having your IRA
purchase a home for yourself.

3) “Self-Dealing” use of an IRA Property — Buying
a rental vacation home with IRA money and then
staying in the home.

4) “Self-Dealing Personal Benefit from IRA — Receiving
personal benefit from your IRA (paying yourself for
work that you do on the property (e.g., repairing the roof).

Exemptions — What is One?

Exemptions are permission to invest in something or in some way that is
technically a prohibited transaction. For example, it is a prohibited transaction

to rent property owned by your IRA to your child. An
exemption would allow you to do so.

Can I buy a business with my self-directed IRA?

Yes you can buy a business with your IRA money via self-directed status. Please contact us for details.

Existing Businesses — Can I Invest Into?

Yes. This can be done as the purchase of stock as a loan to the business.

What About Investing Into S-Corporations?

S-Corporations do not allow IRAs as investors; they only allow individuals
as investors. Therefore, it isn’t so much that IRAs are prohibited from
investing in S-Corporations, rather that S-Corporations don’t permit having
an IRA as a shareholder. It is likely that the investment of the IRA would revoke

the sub-s status of the corporation.

Rollovers — Can I Rollover an “Old” 401K Plan Into a SD IRA?

Yes. You can move these 401K funds into either a self-directed IRA or 401K. You can start controlling this money yourself rather than
letting your old employer control your future.

Can I Buy CDs, Options, Bonds, Etc.?

In fact, if you are an active swing trader or day trader, you will be able to trade

your IRA in a manner that your current broker does not
allow you to trade using your self-directed IRA assets. For example, you
probably have asked your broker if you can buy or sell Options (Calls and Puts).
Or maybe you would like to write Covered Calls or do Spreads and have been told
no. The your self-directed IRA allows you to trade your way.
allows you to trade your way.

How Do I Get More Information?

You may contact PGI SelfDirected at 1.855-844-2225.

You may email PGI SelfDirected at info@pgiselfdirected.com OR john@pgiselfdirected.com

You can fax PGI SelfDirected at 1-877-616.1428.

I Have Severl Old IRAs and 401Ks — Can I Combine All of Them into MY IRA?

Yes. The can all be combined and then invested into either aself-directed IRA or 401K so that your buying power is maximized. The only
restriction is on 401(k)s; at is is that you generally must no longer work for
the employer. You can usually combine multiple retirement accounts into one
account. Or in the event that they can’t be combined, such as the case of a
traditional IRA and a Roth IRA, they can still be invested into the same self-directed IRA or 401K so that you still have maximum buying power.

How do I Get Stared with MY SD IRA?

You may email PGI SelfDirected and request an IRA Order Form or access an IRA Order Form directly from this website.

If you have any questions, please do not hesitate to contact John Park, President, PGI Agency, Inc.:

john@pgiselfdirected.com

1.855.844.2225

602.684.2922
PGI will get you on the path to optimizing your SD IRA.

What is a Self-Directed 401K?

Legally speaking, a self-directed 401(k) is no different than any other 401(k). Having a self-directed 401(k) simply means that you are allowed to direct the investments of the 401(k). Many financial institutions claim that they allow you to self-direct your 401(k) investments but then turn around and restrict what you can invest in. A truly self-directed 401(k) allows you to make the decisions without restriction.

What is a TRUE Self-Directed 401K?

It is a step further towards putting you in full control of your 401(k). You don’t have to go to your financial institution to get approval of the investment and get a check written. You truly have a self-directed 401(k) because you have checkbook control.

What Can I Invest In if I Have a Self-Directed 401K?

The investments that you make outside your 401(k) can now be made within it. You the investor have tremendous flexibility to make the investments of your dreams. Wouldn’t you love to be able to invest your 401(k) in:

Residential Real Estate

Commercial Real Estate

Raw Land

Trust Deeds / Mortgages, and Mortgage Pools

Private Notes and Loans

Private Stock Offerings

Limited Liability Companies (LLCs)

Limited Partnerships (LPs)

Tax Certificates

Receivables

Stocks, Bonds, Mutual Funds

Annuities

Options

Currency

Futures

Commercial Paper

And MANY other investments!

What Kind of Retirement Plans can be Self-Directed?

Traditional IRAs

Sep IRAs

Roth IRAs

401(k)s

403(b)s

Coverdell Education Savings (ESA)

Qualified Annuities

Profit Sharing Plans

Money Purchase Plans

Government Eligible Deferred Compensation Plans

Keoghs

Is This New?

No. There are two TRILLION dollars held in retirement accounts; however, only about 3% of retirement accounts are self-directed and only about 2% are invested in Real Estate. But what most people don’t know is that the stock market isn’t your only investment choice for your Self-Directed 401(k). You have been able to invest in Real Estate since the day 401(k)s were created. That was about 30 years ago!

Why Haven’t I Head of This Before?

Who would tell you? Your stock broker? They will only let you invest your 401(k) in investments that their firm offers. At a bank you will be limited to CDs. At a brokerage firm you will be limited to stocks and bonds. As a consequence, and unfortunately for many investors, it has been a well kept secret that they have other options for their 401(k)s. The traditional investment community has had control of over 97% percent of retirement accounts, and they have been making a great living off your accounts. Why would they want to let you know of alternatives that they wouldn’t benefit from?

As investors have become more disillusioned and frustrated with traditional investment choices, they have begun looking for alternatives. After the steep stock market decline, corporate scandals and corruption (e.g. Enron, ImClone, Worldcom) and many investors seeing their retirement accounts cut in half, they are ready to take control of their own investments. They often want more tangible investments such as Real Estate.

However, when they ask their current custodians / brokers, they are typically told that such investments are illegal, too complicated or that it can’t be done. But those are ignorant and self-serving responses. Although those custodians / brokers may not allow it, it can be done. It is just likely you can’t do it through your current custodian so they financially suffer if you make a move. They aren’t going to tell you about it.

Are There any Downsides?

The only downside is that some people don’t want to be in charge of their own retirement investments. They are happy having someone else make all the decisions. A self-directed 401(k) is not right for them.

For the rest of us who want to be involved in our retirement investments and make decisions that will affect our retirement, there are no downsides. Just be aware of the prohibited transactions / restrictions (no self-dealing). We firmly believe that you are the best steward for your money. Nobody cares as much about your retirement as you do.

Why is there so Little Information about Self-Directed 401Ks?

The traditional investment community has control and is making money of over 97% of the retirement accounts. Why would they want you to know that you had other options, and risk losing the commissions on your retirement accounts?

How do I Get Checkbook Control of MY SD 401K?

Many people and advisors equate a Self-Directed IRA and a Self-Directed 401(k) as being the same. They are not — they have similarities but are quite different. One major difference is: Self-Directed IRAs require a custodian, while Self-Directed 401(k)s DO NOT. The trustee of the Self-Directed 401(k) plan calls all the shots. For example, in the Self-Directed 401(k) plan for John Smith known as the “John Smith 401(k) PSP,” Mr. Smith is the trustee, and he is in complete control of the plan.

Do I Get Complete Control?

Yes, as stated in the answer for #9, the Plan Trustee writes the checks and controls the investments. There isn’t a need for an LLC (as with Self-Directed IRAs) to obtain checkbook control.

How do I Know this is Legal?

This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds. They have no idea that they can invest in Real Estate and many other investments. However, Real Estate has been an allowed investment since the day 401(k)s were created.

Find out for yourself by going to the Internal Revenue Service’s website at www.IRS.gov. Request Publication 590. On pages 40-41 you will see what investments are not allowed (see below – collectibles, life insurance, s-corporation stock, etc.). Real Estate is NOT mentioned as a disallowed investment just like stocks, bonds, mutual funds are not mentioned as a disallowed investment.

Can I transfer funds from a 401(K), IRA, Sep IRA, Roth IRA, or 403b and direct investments myself?

Yes. You can self direct all of these types of accounts. They can all be invested into the Self-Directed 401(k) for truly self-directed investing.

Can I Invest MY SD 401K into Real Estate?

Absolutely. Although less than 3% of retirement accounts are invested in non-traditional investments (anything other than Dow & Nasdaq stocks, bonds, CDs, etc), and less than 2% are invested in Real Estate, that is changing. More and more individuals are becoming more and more frustrated with the options offered by their current custodians. Individuals are exploring investments that they can see and touch and that have some tangible value such as Real Estate. They have seen the outstanding returns that investors have historically received in Real Estate and want to move all or part of their retirement money into various Real Estate investments.

Within the broad category or Real Estate there are many options for investment:

Residential Rentals

Commercial Properties

Condominiums

Mobile Homes

Raw Land

Real Estate in Foreign Countries

Trust Deeds / Mortgages, and Mortgage Pools

What does the IRS Think of Investing Your 401K into Real Estate?

The IRS rules do not prohibit Self-Directed 401(k)s from investing in real estate.

Can MY Self-Directed 401K Purchase Real Estate I Already Own?

No. This would be considered a prohibited transaction (see IRC 4975). You many not purchase property which is currently owned by you or any other disqualified person (see below). You would need to find another piece of Real Estate that you don’t already own to purchase.

Why Does My Broker say I Can’t Purchase Real Estate in MY 401K?

Likely because your current broker won’t let you invest in real estate through their custodian. Just because that isn’t something they offer doesn’t mean that you can’t do it; It just means that you can’t do it through them. It is a limitation that your broker is placing on your 401(k) NOT one that the IRS is placing on your 401(k). Or your current broker may just be ignorant. Either way, you can invest in Real Estate.

What is the easiest way to buy Real Estate using my Self-Directed 401(k)?

A truly Self-Directed 401(k) plan easily allows you invest in real estate. Because your plan has a checking account, you simply write a check to the title company, etc., and title the real estate in the name of the plan.

If I buy an income producing rental property, what happens to the rent income?

The income goes back into the Self-Directed 401(k) plan, and you retain the tax deferred or tax free status of the investment.

I don’t have enough money in my 401(k) to purchase a piece of property outright. Can my Self-Directed 401(k) plan get a loan and use my 401(k) money as the down payment?

Yes you can use your 401(k) money as the down payment and then have your Self-Directed 401(k) plan get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse type of loan which means that if your 401(k) fails to make payments, the only recourse the lender has is against the property itself. Further, there will be tax ramifications to doing so; UDFI (unrelated debt financed income) tax applies when a loan is obtained so you would want to confer with your tax professional about what forms would be necessary.

My 401(k) is small. Can I personally co-invest with my Self-Directed 401(k)?

It is not a prohibited transaction for you to co-invest with your Self-Directed 401(k). However, there are certain formalities that need to be adhered to, and there are some situations where it isn’t advised.

Can my Self-Directed 401(k) co-invest with friends?

May I use my Self-Directed 401(k) funds to make improvements or renovations?

Yes. In fact, you must use Self-Directed 401(k) funds to make the improvements and pay all expenses associated with the property. All expenses of the property are paid with Self-Directed 401(k) funds, and all profits made on the property are returned to the Self-Directed 401(k). This makes sense because it is an investment of the Self-Directed 401(k).

Can I Buy Vacation Property?

Yes. Doing so would not constitute a prohibited transaction. However, you cannot vacation there.

Can I buy my dream retirement home with my Self-Directed 401(k) and then live in it when I reach the age of retirement?

Yes. Your Self-Directed 401(k) would be the original owner. You would use your Self-Directed 401(k) money to make the purchase and maintain the property. Any rents generated would be returned to the Self-Directed 401(k). However, upon reaching retirement age, the property could be distributed out to you. Of course, you would have to pay taxes at that point but without penalty.

What are the advantages to using a Self Directed 401(k) plan when investing my 401(k) in Real Estate?

Real estate deals can be time sensitive. With a true Self-Directed 401(k), you can act immediately to secure the down payment, etc. If you see something you like, write the check.

Can my Self-Directed 401(k) Plan get a mortgage on a piece of property?

Yes. The mortgage would need to be a non-recourse type of loan, meaning that if your Self-Directed 401(k) fails to make the payments, the only recourse the lending institution has is the property itself. Also, be aware that if your Self-Directed 401(k) obtains a loan, unrelated debt financing income tax will apply.

Can my Self-Directed 401(k) Plan make loans to other individuals who want to buy Real Estate?

Absolutely. And this is done frequently, and it is a great investment for your Self-Directed 401(k) because the loan can be secured by the property.

Can I make a loan to my brother so that he can use the money as a down payment on a home?

Yes. According to IRC 4975, siblings are not included in the definition of disqualified persons. Thus, a loan to your brother would not be a prohibited transaction. Although some suggest that it was an error on the part of the IRS to omit siblings from the definition, they, nonetheless, were omitted and to the best of our knowledge, there has never been an IRS ruling to the contrary.

Can my Self-Directed 401(k) Plan make loans to a friend?

Absolutely. Friends are not disqualified persons under the Code, and therefore, your Self-Directed 401(k) can make a loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.). Of course, you want to make sure that there are proper formalities and reasonable terms to the loan.

Can my Self-Directed 401(k) Plan make loans to a Real Estate developer?

Yes. Your Self-Directed 401(k) can loan money to a Real Estate developer to finance the purchase of property or the development of property. Developers often look for private financing so it is a great way to get your Self-Directed 401(k) involved in Real Estate development. And because developers often pay an above market interest rate, the loan can be a great investment for your Self-Directed 401(k).

Can my Self-Directed 401(k) Plan make loans to businesses or companies?

Sure. Your Self-Directed 401(k) can make a loan to any type of business. However, be aware that there are some restrictions on loan money to any business that you or any other disqualified person has an ownership interest in.

Do taxes and penalties apply when I take money out to buy Real Estate?

No. You DO NOT take money out to purchase Real Estate or anything else you want to buy. It is just a purchase of your Self-Directed 401(k). There are no taxes or penalties. Instead of buying 1000 shares of Microsoft or any other typical stock, your Self-Directed 401(k) is just making a different type of investment. The method of doing so is different but the tax ramifications are the same.

Are the gains that my Self-Directed 401(k) Plan makes taxable?

Not in most cases. If a Self-Directed 401(k) buys a piece of property and then sells it at a profit, the gains stay within the Self-Directed 401(k). If you have a traditional 401(k), the gains are tax-deferred. If you have a Roth 401(k), the gains are tax free. Note, you alter that result if you use leverage.

Are there any special taxes that apply when I use leverage?

Unrelated debt financing for real estate purchases DOES NOT apply. It does with a self-directed IRA, so this is a huge advantage.

Does it still make sense to use leverage?

Absolutely, because of your increased buying power when you use leverage.

Can I invest outside of my state or outside the country?

Yes! Your Self-Directed 401(k) can invest outside of the U.S. States. There are many great investment opportunities in other countries.

What Are Prohibited Transactions?

Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your Self-Directed 401(k). The IRS defines a prohibited transaction as follows:

“Generally a prohibited transaction is any improper use of your 401(k) account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).”IRS Publication 590

IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following: (1) doing business with a disqualified person; (2) benefiting someone other than the 401(k); (3) loaning money to a disqualified person; or (4) investing in a prohibited investment.

In plain English, prohibited transactions are those transactions that violate the basic intent of the 401(k). Your Self-Directed 401(k) must benefit rather than benefiting you personally. In other words, there can be no “self dealing” transactions. However, there are many ways in which you can invest your Self-Directed 401(k) and not be in violation of the prohibited transaction law. And when your Self-Directed 401(k) benefits, you benefit because it is for your retirement.

What Are Prohibited Investments?

The Internal Revenue Code does not specifically authorize investments within a 401(k); rather, the code outlines what types of investments are not allowed. The Prohibited Investments include:

Artwork

Rugs

Antiques

Metals

Gems

Stamps

Collectible Coins

Beverages

Stock in a S-Corporation

And certain other tangible personal property

Who Is a Disqualified Individual?

the 401(k) holder and his or her spouse;

the 401(k) holder’s ancestors, lineal descendants and their spouses;

investment advisors and managers

any corporation, partnership, trust or estate in which the 401(k) holder has a 50% or greater interest; and

anyone providing services to the 401(k) such as a trustee or custodian.

How am I a disqualified person? It doesn’t seem to make sense.

There is a clear distinction between your 401(k) and you individually. You and your 401(k) are not the same. Your 401(k) is a separate Trust for your benefit when you retire.

What would be classified as Self Dealing?

Self dealing is using your Self-Directed 401(k) in transactions that in some way benefit you (or other disqualified persons) individually. The purpose of your 401(k) is to provide for your retirement. It is not intended to benefit you prior to retirement and distribution of the funds.

What are some types and examples of Prohibited Transactions and / or Self-Dealing Transactions?

Self dealing with a family member (having your Self-Directed 401(k) purchase a home from your father).

Self dealing with yourself (having your Self-Directed 401(k) purchase a home from yourself).

Personal use of Self-Directed 401(k) property (buying a rental vacation home with Self-Directed 401(k) money and then staying in the home when on vacation).

Receiving personal benefit from your Self-Directed 401(k) (paying yourself for work that you do on the property such as repairing the roof).

What are Exemptions?

Exemptions are permission to invest in something or in some way that is technically a prohibited transaction. For example, it is a prohibited transaction to rent property owned by your Self-Directed 401(k) to your child. An exemption would allow you to do so.

Can I buy a business with my Self-Directed 401(k) Plan?

Yes you can buy a business with your Self-Directed 401(k) money. Please contact us for details.

Can I invest in an existing business?

Yes. This can be done as the purchase of stock as a loan to the business.

What about S-Corporations?

S-Corporations do not allow Self-Directed 401(k)s as investors; they only allow individuals as investors. Therefore, it isn’t so much that 401(k)s are prohibited from investing in S-Corporations rather that S-Corporations don’t permit having a 401(k) as a shareholder. It is likely that the investment of the 401(k) would revoke the sub-s status of the corporation.

Can I buy Stocks, CDs, Bonds, Options, etc.?

Yes. You can invest in any 401(k) permitted investment. That includes publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. In fact, if you are an active swing trader or day trader, you will be able to trade your Self-Directed 401(k) in a manner that your current broker does not allow you to trade using the Self-Directed 401(k) Plan. For example, you probably have asked your broker if you can buy or sell Options (Calls and Puts). Or maybe you would like to write Covered Calls or do Spreads and have been told no. The Self-Directed 401(k) Plan allows you to trade your way.

I have a 401(k) with an old employer. Can I move it into the Self-Directed 401(k) Plan?

Yes. You can move these 401(k) funds into the Self-Directed 401(k) Plan. You can start controlling this money yourself rather than letting your old employer control your future.

I have a 401(k) with my current employer. Can I move it into the Self-Directed 401(k) Plan?

The 401(k) plan documents will specify what you can do but most of the time you cannot move money from a 401(k) plan if you are currently working for the company. Ask your company plan administrator if “in service transfers” are allowed. If the answer is “yes,” then you can transfer to your Self-Directed 401(k)

I have several IRAs and old 401(k)s. Can I combine them?

Yes, generally speaking, any pre-tax (non-Roth) funds can be combined into your self-directed IRA or 401K so that your buying power is maximized. One big exception…a 401K plan from a current employer cannot be rolled over into another plan, self-directed or not. You can usually combine multiple retirement accounts into one account. Or in the event that they can’t be combined, such as the case of a traditional IRA and a Roth IRA, they can still be invested into one self-directed IRA LLC so that you still have maximum buying power.

How can I get more information?

You may contact PGI SelfDirected at 1.855-844-2225.

You may email PGI SelfDirected at info@pgiselfdirected.com OR john@pgiselfdirected.com

You can fax PGI SelfDirected at 1-877-616.1428.

How do I get started?

You may email PGI SelfDirected and request an 401K Order Form or access an 401K Order Form directly from this website.

If you have any questions, please do not hesitate to contact John Park, President, PGI Agency, Inc.: